President Johnson's proposal to remove the remaining gold backing of United States currency has underlined the historic importance of gold as the primary medium for settling international accounts. It also has intensified the long-standing debate on the merits of gold as a monetary reserve. The traditional view, as often expressed in recent years by French President de Gaulle, is that gold is, “at all times, the immutable and fiduciary value par excellence.” On the other hand, William MeChesney Martin Jr., chairman of the Federal Reserve Board, regards gold as a “barbarous metal.” France, whose monetary gold reserves have been growing, seeks a return to the gold standard and a substantial increase in the price of the metal. The United States, whose gold reserves have been dwindling for almost 20 years, wants to make the international monetary system less dependent on gold and to maintain the price at $35 an ounce.

Plan to Remove Gold Cover From U. S. Currency

The U. S. Treasury's standing offer to buy from or sell to foreign governments any amount of gold at $35 an ounce represents the keystone of the world monetary system. That fixed exchange rate, dating from 1934, has helped to ensure stability of the dollar. Foreign governments, confident that dollars were as “good as gold,” have accepted them as a part of their monetary reserves.

The trouble is that a decade of big American balance-of-payments deficits has led to a massive accumulation of dollars in European central banks and thus to potentially large claims on this country's monetary gold stock. The United States gold reserve is now down to about $11.9 billion, and $10.7 billion of that total represents the required gold “cover” of outstanding Federal Reserve notes. Federal Reserve Board Chairman Martin and Treasury Secretary Henry H. Fowler, testifying before the House Banking and Currency Committee on Jan. 23, said that the remaining $1.2 billion of “free gold” would disappear within two years even if foreign governments refrained entirely from exchanging their dollars for gold. About $500 million worth of gold is needed every year, they explained, to back the normal $2 billion annual increase in paper currency. In addition, licensed sales of gold to industrial and artistic users aggregate about $150 million a year.